Research

CHINA EVERBRIGH INT

China Everbright Intl Ltd (CEIL) has one of the worst track records in Asia for cashflow generation relative to profit. CEIL gains this dubious distinction because it applies accounting rules for its service concessions in a manner that accelerates profit recognition relative to cashflow. Limited disclosure means investors may be unaware of CEIL’s lacklustre cash profit performance. If we strip out our estimate of front-loaded earnings, 2017 profit falls 61%, its PE rises to 36x and its ROIC is only 6%. Our target price of HK$5.40 is based on 2x adjusted book value and gives 50% downside. SELL. GET PDF…Read more ›

Insights

Mark Webb · 14 May 2019

CKH Holding’s (CKHH) recently released annual report reveals that accounting adjustments relating to the acquisition of Wind Tre, combined with the residual impact of the 2015 reorganisation, boosted FY18 profit by approximately HK$13.2bn, or 38%. These non-cash adjustments explain why operating cash flows lag cash profit, and why capex consistently exceeds depreciation and amortisation. Furthermore, by deeming a portion of its assets as held-for-sale, CKHH may be concealing HK$57.7bn of debt in liabilities associated with assets held-for-sale. Presumably, this aggressive accounting is being used to give CKHH a higher market rating and access to cheaper credit than it would have…Read more ›

Nigel Stevenson · 30 April 2019

We estimate that Australia’s largest construction company CIMIC has inflated profits by around 100% in the last two years through aggressive revenue recognition, acquisition accounting and avoidance of JV losses. A lack of supporting cash flow has been obscured by the increased sale of receivables and reverse factoring of payables. While reported net cash was 69% of equity at YE18, we estimate adjusted net debt-to-equity of 74%. CIMIC’s refusal to provide substantive answers to our questions suggests it has something to hide. Get PDF version Dominant shareholder CIMIC came to our attention owing to a large restatement of its shareholders’…Read more ›

Mark Webb · 30 April 2019

58.com’s recently released annual report provides further evidence that it has hidden losses by deconsolidating subsidiaries. It has treated 58 Home as an associate since 2015 despite retaining 88% of its ordinary shares. Furthermore, in FY18, it stopped recognising most of 58 Home’s losses as its carrying value had fallen to zero. Without this, 58.com’s profits would have fallen 36% in FY18 rather than the reported increase of 55%. In another engineered transaction, 58.com transferred its loss-making Finance Business to its CEO in 2017, but appears not to have received any net consideration since, and continues to support the business…Read more ›